The US dollar steadied on Tuesday, recovering from earlier losses, after President Trump's inauguration speech did not immediately announce new tariff policies, easing market fears of trade risks. Nonetheless, the market remains keenly focused on the Trump administration's policy directions, especially potential measures in tariffs, immigration, and energy sectors.
Dollar Performance and Market Reaction
In his inauguration speech, Trump announced a series of emergency measures, including policies on immigration and energy, while also emphasizing a more expansive foreign strategy, such as pledging to reclaim the Panama Canal. However, the tariff issue was only briefly mentioned, with no clear timeline or details provided.
As a result, the dollar index fell 1.2% on Monday, marking its biggest single-day drop since the end of 2023, before settling at 108.060 on Tuesday, slightly above the critical support level of 107.70. Previously, The Wall Street Journal reported that Trump would release a comprehensive trade memorandum on Monday but would not immediately announce tariff increases. Incoming Trump administration officials later confirmed this information.
Taylor Nugent, a senior market economist at National Australia Bank, stated: "This doesn't mean tariffs won't be implemented, but suggests a gradual approach might be taken rather than a full strategy of tariff imposition."
Policy Expectations and Market Focus
The market initially expected Trump to announce tariff measures directly through an executive order, a move anticipated to reinforce expectations of rising inflation and the Federal Reserve maintaining high interest rates. However, Nick Rees, head of macro research at Monex Europe, pointed out: "The market breathed a sigh of relief with Trump not imposing tariffs immediately, but this confidence may be somewhat misplaced. More targeted tariff policies are likely in the future."
Since the presidential election last November, the dollar has risen by about 4%, as the market anticipated Trump's economic policies would boost growth and inflation. Investors are focused on how he will implement these promises after taking office. At a rally on Sunday, Trump mentioned plans to strictly limit immigration, while analysts predict he may invoke the International Emergency Economic Powers Act (IEEPA) to address economic threats. IEEPA is a federal law allowing the president to regulate economic transactions during special threats.
Other Currencies and Market Dynamics
The euro rose 1.3% against the dollar to $1.04, pulling away from last week's two-year low of $1.0177. Meanwhile, the dollar fell 0.4% against the yen, at 155.61. The Bank of Japan will hold a policy meeting early this week, with widespread expectations of a rate hike at this meeting.
Additionally, recent soft US inflation data and market expectations of Federal Reserve interest rate cuts have boosted risk asset performance. Ajay Rajadhyaksha, a research analyst at Barclays, stated: "On fiscal policy, we will watch for any mention of fiscal stimulus from Trump, which could become a key market driver in the future."
